Toward an Entrepreneurial Policy for European Economies

For entrepreneurship to flourish, Europe must create an environment where risk-taking is encouraged, incentive structures are in place, and policy is oriented toward individual freedom, says Carl Schramm.

As nations contemplate their economic future, three perspectives may prove useful in considering how best to reap the benefits of increased entrepreneurial activity. Each hinges on changing the economic culture.

Changing economic culture

The first is changing the culture within a nation's economic system. Because government sets the economic rules and, hence, incentives, it has the key role to play in creating a culture congenial to entrepreneurship. (The experience in the United Kingdom, Ireland, China and India make this point.) Government's task is to "structure the conditions for successful spontaneity."¹

High-growth entrepreneurship emerges when the proper incentive structure is in place, when individual initiative is encouraged, and when individuals have the opportunity to engage in technological innovation. Business formation and radical innovation are necessary for sustained economic growth and wealth creation. This requires a policy environment oriented toward individual freedom and opportunity.

Reversing the "guild mentality"

While entrepreneurship cannot be planned by a government it can do many things to change the economic culture. One good example is that in many of your countries it is difficult to even start a company let alone get capital to initiate its operations.²

Other companies in that sector often collude with banks and governments to resist the creation of new firms. The "guild mentality" that appears at many levels of economic life, that government often abets and enforces, is antithetical to the operation of an entrepreneurial economy.

Government must instead displace this stifling environment—the future economy cannot grow and be predictable as in the past. Industrial policies that attempt to avoid the messy economies that engender entrepreneurial risk will endlessly fail to keep up with world gains in productivity and wealth creation. There is no second road.

Risk an important ingredient for success

To be very blunt, entrepreneurial activity cannot be treated as the side ring at the circus. It is not to be tolerated or encouraged as an important adjunct to the economy. It must become the economic culture itself. That is, entrepreneurial thinking must be alive in big business, government, and university education.

A new national policy must be created where more risk is internalised in the life of individuals as well as large corporations. The alternative nourishment is to break down barriers to risk taking, make risk capital more available, improve educational systems, and encourage an environment of what one observer has called "controlled chaos."

Empowering individuals

Second, in addition to encouraging change among institutional actors, government might take "pre-conditioning" steps to signal its commitment to making individual initiative more important to a new economic culture.

The Kauffman Foundation has made a major impact in the United States by encouraging cultural signals relating to entrepreneurship. Among our programmes in this arena is:

• the work we do with Disney, www.hotshotbusiness.com, which brings internet business start-up simulations to teenagers;
• our initiative with minority entrepreneurs;
• our university programmes that prepare all students (not just those studying in business schools) for a life as an entrepreneur;
• our opening of new capital markets to start-up entrepreneurs by organising angel investors; and
• our efforts in speeding new discoveries from university laboratories directly to entrepreneurs.

Finding a solution that works

Finally, each government must develop its own specific policy and execute it in a subtle, tactical way. What works for one country can be disastrous for another. The prescription for each country is very different, and only through careful study and thoughtful tactics can a successful strategy be forged.

America and Europe have so much to learn from each other and so much invested in the ultimate success of each other. Indeed, it might be said that our view of civilisation and world peace depends on our embrace of similar economic cultures that yield growth, openness, and economic security in wholly new ways.

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References

1. Malcolm Gladwell, Blink 99 et seq. (Little, Brown & Company, 2005).

2. OECD, Economic Policy Reforms: Going for Growth, Annex A 152-153 (2006).

Carl Schramm is president and CEO of the Ewing Marion Kauffman Foundation. The Foundation is the largest of its type working exclusively to foster entrepreneurship in the US.

This is an excerpt of a keynote speech he delivered to the European Union Finance Ministers on 8 April 2006. Read the full speech (PDF).

Published January 2006